Short at EOD

Here is a 9000 Tick Chart of the S&P futures (ES).   Traders do best when they can track the progress of price and volume by each individual wave.  But, you can see in the lower panel that the volume as normally displayed is very difficult to read.  I like to use the David Weis’s Wave Chart to track the market’s progress on advances and rallies.

A – Yesterday, the market opened with strong upside wave volume from the end of the previous day and the overnight session.

B – Pullbacks prior to the US Open indicated that sellers were not in the market.  It gave the indication that long trades were better choices than shorts yesterday morning.

C – We see good volume and positive price movement on the advance and again, little in the way of supply through the first part of the morning.

D – Still good volume though the price movement has shortened – an early warning that although buyers are present, someone is selling into that buying and preventing price from rallying as much as it did on the previous up wave.

E – The picture changes here, and it becomes pretty obvious for those skilled in using the Weis Wave and the Wyckoff Method.  We see the largest down volume in two days.  This is selling coming into the market.  It doesn’t mean that shorts should be taken right away.  In classic Wyckoff terms, this would be considered Preliminary Supply.  Patience is required for the right moment to execute a trade, but we now have two indications (waves D & E) of probable supply.

F – That moment comes at F when price returns to the top of the trend channel and the Wave Chart shows buyers have become tired – there is little demand left in this market at this price level.  This is not seen on the normal display of volume, but you can easily see it in the wave.  Numbers near the price bars reflect the amount of volume.  You can see that wave E has less than 1/2 the volume of the previous up wave.  Comparing wave F to wave D, you can see that there are significantly fewer buyers at this higher price level – a third indication prices are likely to fall.

G – The does market fall about 20 points and we see supply enter the market.  We will now watch the upwaves today to see if buyers want to step back in.  If not, then we would expect more selling during the day session.  Either way, we will know where the odds lie.

David Weis, the originator of this wave chart, will be teaching its use tomorrow night in a webinar you can join from your trading room.  If you register, you will receive his Weis Wave Plug-In for TradeStation (or MetaStock) and his personal instruction in how to use this highly effective tool.  The webinar will be recorded, so you can review his in-depth material.  You can learn more here: Weis Wave Webinar & Plug-In